Health Economics

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Health Economics combines current economic theory, recent research, and health policy issues into an accessible overview of the field. Recent research illustrates core economic concepts, which are then used to focus on key policy areas, such as the structure and effects of Medicare reform, insurance plan design, and emerging medical technologies.

Charles E. Phelps went to the University of Rochester in 1984 as professor and director of the Public Policy Analysis Program, a graduate program offered by the Department of Political Science, in conjunction with the Department of Economics. In 1989 he became chair of the Department of Community and Preventive Medicine in the School of Medicine and Dentistry. He became Provost in July 1, 1994, and served until July 31, 2007. As Provost, he was responsible for overseeing the academic activity of the University, including teaching, research, and supporting services (e.g., libraries, information technology, and technology transfer) in each of the University's six schools. He currently holds the titles of University Professor and Provost Emeritus.

Phelps has achieved national and international recognition for his scholarly research. In 1991 he was elected to the Institute of Medicine of the National Academy of Sciences and to the National Bureau for Economic Research. He served for six years on the Report Review Committee of the National Academies.

Phelps is currently a Fellow at the Center for Advanced Studies in the Behavioral Sciences at Stanford University (academic year 2008–2009).

Provost Emeritus Phelps participated from 1997 to 2007 in the Association of American Universities’ Committee on Digital Technology and Intellectual Property Rights, and was an active participant in the AAU's work in areas involving related topics. He testified before Congress in June 1998 on issues pertaining to the implementation of the World Intellectual Property Organization (WIPO) treaty and has spoken on related matters in conferences on these issues sponsored by, among others, the Department of Commerce. In July 2005, he testified on Patent Reform for the Senate Judiciary Committee's Subcommittee on Intellectual Property.

Provost Emeritus Phelps earned his bachelor’s degree from Pomona College in Claremont, California. He then earned both an MBA in hospital administration and PhD in economics from the University of Chicago. Before beginning his career at the University of Rochester, Phelps worked at the RAND Corporation from 1971 to 1984.

Phelps served from 1998–2006 on the Board of Trustees for the Council on Library and Information Resources (CLIR) in Washington, DC, the last two years as Chair. He currently serves on the Board of Trustees of the Center for Research Libraries in Chicago, and on the Board of Directors of VirtualScopics, Inc., a diagnostic-imaging technology company located in Rochester, New York. He also serves as an advisor to CVT, a pharmaceutical company in Palo Alto, California.

Preface

p. xiii

Why Health Economics?

p. 1

Important (If Not Unique) Aspects of Health Care Economics

p. 2

How Markets Interrelate in Medical Care and Health Insurance

p. 9

Afterthought

p. 30

Summary

p. 30

Related Chapters in Handbook of Health Economics

p. 31

Problems

p. 31

Utility and Health

p. 32

How to Think About Health and Health Care (or...How Health Economics?)

p. 33

The Production of Health

p. 36

Health Through the Lifecycle

p. 38

A Model of Consumption and Health

p. 40

Summary

p. 53

Related Chapter in Handbook of Health Economics

p. 54

Problems

p. 54

Appendix to Chapter 2: A Formal Model of Utility Maximization

p. 55

The Transformation of Medical Care to Health

p. 56

The Productivity of Medical Care

p. 56

Confusion About the Production Function: A Policy Dilemma

p. 73

Physician-Specific Variations (Medical Practice Styles)

p. 80

Extensive and Intensive Margin Differences: Are They Similar?

p. 85

Summary

p. 86

Related Chapters in Handbook of Health Economics

p. 87

Problems

p. 87

Appendix to Chapter 3: Marginal, Average, and Total Productivity

p. 88

The Demand for Medical Care: Conceptual Framework

p. 91

Indifference Curves for Health and Other Goods

p. 92

From Indifference Curves to Demand Curves

p. 98

How Demand Curves Depend on Illness Events

p. 100

Demand Curves for Many Medical Services

p. 101

The Demand Curve for a Society: Adding Up Individual Demands

p. 102

Use of the Demand Curve to Measure Value of Care

p. 103

How Insurance Affects a Demand Curve for Medical Care

p. 105

Time Costs and Travel Costs

p. 116

The Role of Quality in the Demand for Care

p. 118

Revisited: The Price Index for Health Care

p. 121

Summary

p. 122

Related Chapters in Handbook of Health Economics

p. 123

Problems

p. 123

Appendix to Chapter 4: Demand Curves and Demand Elasticities

p. 124

Empirical Studies of Medical Care Demand and Applications

p. 126

Studies of Demand Curves

p. 127

Effects of Age and Gender on Demand

p. 138

The Effects of Illness on Demand

p. 139

Lifestyle and its Effects on Demand

p. 139

The Demand for "Illness"

p. 142

The Demand for Quality: Choice of Provider Specialization

p. 145

Other Studies of Demand for Medical Care

p. 146

Applications and Extensions of Demand Theory

p. 150

Decision Theory: Deriving the "Right" Demand Curve for Medical Care

p. 155

Cost-Effectiveness Ratios and Demand Curves

p. 156

Why Variations in Medical Practice?

p. 157

Summary

p. 158

Related Chapters in Handbook of Health Economics

p. 159

Problems

p. 159

Appendix to Chapter 5: An Example of Medical Decision Theory

p. 160

The Physician and the Physician Firm

p. 165

The "Firm"-Inputs, Output, and Cost

p. 166

The Physician as Entrepreneur

p. 167

The Physician-Firm and its Production Function

p. 168

The Physician as Diagnostician

p. 169

Nonphysician Primary-Care Providers

p. 176

The Size of the Firm-Group Practice of Medicine

p. 180

The Physician as Labor

p. 185

The Aggregate Supply Curve: Entry and Exit

p. 191

The Open Economy: U.S.- and Internationally Trained Physicians

p. 191

Summary

p. 193

Related Chapters in Handbook of Health Economics

p. 193

Problems

p. 193

Appendix to Chapter 6: Cost Passthrough

p. 194

Physicians in the Marketplace

p. 197

Physician Location Decisions

p. 198

Consumer Search and Market Equilibrium

p. 204

Actual Search by Patients

p. 216

Advertising and the Costs of Information

p. 219

The Role of Licensure

p. 221

Estimates of the Demand Curve Facing Physician-Firms

p. 223

Induced Demand

p. 225

The Role of Payment Schemes

p. 233

Summary

p. 235

Related Chapters in Handbook of Health Economics

p. 236

Problems

p. 236

The Hospital as a Supplier of Medical Care

p. 238

The Hospital Organization

p. 239

Who Is the Residual Claimant?

p. 244

Where Does the Utility Function Come From? A Political Theory Model

p. 249

Hospital Costs

p. 254

Long-Run Versus Short-Run Costs

p. 258

The Hospital's "Cost Curve"

p. 259

Another Complication: Outpatient Surgery

p. 262

The Demand Curve Facing a Single Hospital

p. 264

The Utility-Maximizing Hospital Manager Revisited

p. 266

Summary

p. 266

Related Chapters in Handbook of Health Economics

p. 267

Problems

p. 267

Hospitals in the Marketplace

p. 269

Hospitals and the Market for Medical Staff

p. 270

Hospitals and Patients

p. 272

A Model of Equilibrium Quality and Price

p. 274

Insurance and Competition in the Hospital's Decision

p. 278

Interaction of Doctors and Hospitals: "Goodies" for the Doctor

p. 281

Interaction of Doctors and Hospitals: Patients for the Hospital

p. 282

Competition-"Old Style" Versus "New Style"

p. 283

Entry and Exit: The Pivotal Role of For-Profit Hospitals

p. 286

The Hospital in Labor Markets

p. 286

Nursing "Shortages"

p. 292

Summary

p. 294

Related Chapters in Handbook of Health Economics

p. 295

Problems

p. 296

Appendix to Chapter 9: The Hospital's Quality and Quantity Decision

p. 296

The Demand for Health Insurance

p. 300

The Demand for Health Insurance

p. 301

Reasons People Want Insurance

p. 302

Choice of the Insurance Policy

p. 308

Insurance Market Stability: The Question Of Self-Selection

p. 318

Income Tax Subsidization of Health Insurance

p. 326

Empirical Estimates of Demand for Insurance

p. 333

The Overall Effect of the Tax Subsidy on the Health Sector

p. 335

"Optimal" Insurance

p. 335

Other Models of Demand for Insurance

p. 336

Summary

p. 337

Related Chapters in Handbook of Health Economics

p. 338

Problems

p. 338

Appendixes to Chapter 10

A Detailed Calculation of Welfare Loss

p. 341

The Calculus of the Risk/Moral Hazard Trade-off

p. 342

The Statistics of an Insurance Pool

p. 344

Health Insurance Supply and Managed Care

p. 345

The Supply of Insurance

p. 345

Managed Care: A Response to the Incentives of Traditional Insurance

p. 350

Why Managed Care?

p. 352

Types of Interventions

p. 357

Consumer Side

p. 357

Which Interventions Work Best for Managed Care?

p. 368

Long-Run Issues

p. 370

Summary

p. 374

Related Chapters in Handbook of Health Economics

p. 374

Problems

p. 374

Government Provision of Health Insurance

p. 376

The Medicare Program

p. 378

Medicare HMOs (Medicare Advantage)

p. 381

Operational Changes in Medicare

p. 390

The Medicaid Program

p. 411

Summary

p. 416

Related Chapters in Handbook of Health Economics

p. 418

Problems

p. 418

Medical Malpractice

p. 420

Background of the Legal System in the United States

p. 421

The Economic Logic of Negligence Law

p. 427

Judicial Error, Defensive Medicine, and "Tough Guys"

p. 430

Medical Malpractice Insurance

p. 433

Evidence on Actual Deterrence

p. 434

Malpractice Awards: "Lightning" or a "Broom Sweeping Clean"?

p. 445

Tort Reform

p. 446

Tort Reform Writ Large

p. 450

HMO Liability: A New Domain for Malpractice Law

p. 450

Summary

p. 452

Related Chapter in Handbook of Health Economics

p. 452

Problems

p. 452

Externalities in Health and Medical Care

p. 453

Externalities, Property Rights, and the Control of Externalities

p. 454

Externalities of Contagion

p. 456

Solutions to the Externality Problems

p. 464

International Issues-Expanding the Scope of the Externality

p. 467

Externalities from Tobacco

p. 469

Information as an Externality

p. 472

Research as an Externality

p. 475

Reasons for So Little Research on Medical Effectiveness

p. 476

Transfusion-Induced AIDS and Hepatitis

p. 478

Summary

p. 480

Related Chapters in Handbook of Health Economics

p. 480

Problems

p. 480

Appendix to Chapter 14: Value of Life

p. 481

Managing the Market: Regulation and Technical Change in Health Care

p. 484

A Taxonomy of Regulation

p. 485

Licensure

p. 486

"Certificate of Need" (CON) Laws

p. 493

Drugs and Devices: The New Wave of Medical Care

p. 507

Summary

p. 526

Related Chapters in Handbook of Health Economics

p. 527

Problems

p. 527

Universal Insurance Issues and International Comparisons of Health Care Systems